$349B federal small-business paycheck fund runs dry; some in Chicago were lucky, others left in the lurch

The federal government’s $349 billion program to help small businesses stay afloat during the coronavirus pandemic has run dry, leaving thousands of small business owners whose applications are pending to wait on Congress to replenish the funds.

The Small Business Administration said Thursday it is unable to accept new applications for the Paycheck Protection Program, passed by Congress as part of the $2.2 trillion CARES Act.

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The SBA will not be able to issue new loan approvals if the paycheck program and the Economic Injury Disaster Loan Program, another heavily tapped funding resource for small businesses, experience a “lapse in appropriations,” officials warned.

“The SBA has processed more than 14 years’ worth of loans in less than 14 days," Treasury Secretary Steven Mnuchin and SBA Administrator Jovita Carranza said in a joint statement Wednesday night as funds for the program were close to depleted.

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President Donald Trump signs the $2.2 federal stimulus, formally known as the Coronavirus Aid, Relief, and Economic Security Act, or CARES Act, on March 27, 2020, in the Oval Office at the White House in Washington. (Erin Schaff/Getty Images)

Launched April 3 as part of the federal coronavirus relief act, the program offers businesses with fewer than 500 employees loans of up to $10 million to cover eight weeks of payroll. The two-year loans, which are backed by the SBA, carry a 1% interest rate.

Businesses do not have to pay back the portion of the loan used to cover payroll costs as long as at least 75% of the proceeds are used to keep paying employees during those eight weeks.

The SBA approved more than 1.6 million loans worth $349 billion before the funding ran out.

Response to the forgivable federal payroll loans overwhelmed the process with application backlogs at banks, authorization delays at the SBA and many small businesses left waiting for relief.

“There were challenges at the beginning,” SBA Illinois spokeswoman Jessica Mayle said. “They were really creating this system from the ground up in a week.”

In Illinois, 44,453 paycheck loans worth more than $12.5 billion have been approved at an average of $281,196 per business, Mayle said.

Spring Capers may be one of the lucky ones. When the Chicago stylist temporarily closed her 3-year-old South Loop hair salon last month amid the coronavirus outbreak, she knew it would hit her seven employees hard.

Spring Capers, owner of Spring's Place: The Hair Studio, is seen outside her South Loop business on April 15, 2020. Capers received a federal Paycheck Protection Program loan to pay her seven stylists and a receptionist while the 3-year-old business is temporarily closed during the COVID-19 crisis. (Jose M. Osorio / Chicago Tribune)

Her stylists, who worked on commission, had medical issues, car payments, families to support and mostly lived paycheck to paycheck. Knowing they could only survive a few weeks without work before the money ran out, Capers encouraged them to seek unemployment benefits.

All that changed Monday, when she was approved for a $62,500 forgivable federal loan from the paycheck program, enabling Capers to keep paying her staff for the next eight weeks, until hopefully, Spring’s Place hair studio can reopen.

“It isn’t a lot out of a trillion dollars, but it’s everything for us,” said Capers, 60.

Small businesses are especially vulnerable to the economic disruption wrought by the coronavirus pandemic.

An April 3 study by MetLife and the U.S. Chamber of Commerce found that nearly 1 in 4 small businesses have temporarily shut down, and that more than half expect to be closed within weeks.

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Providing payroll support — the largest expense for most small businesses — may be a crucial bridge to the end of the coronavirus shutdown and a return to something resembling business as usual.

The paycheck loans are administered at the local level by a network of nearly 5,000 SBA-affiliated banks and credit unions nationwide, including Rosemont-based Wintrust Financial Corp., which has received about 10,000 applications totaling more than $3.6 billion.

About 7,000 of those loans, worth a total of $2.9 billion, have been approved, with the businesses expected to get their money within a week, Wintrust founder and CEO Ed Wehmer said Tuesday. Banks have 10 days after loan approval to disburse the money, according to SBA guidelines.

Wehmer said the bank has had “all hands on deck” to push through more loans in two weeks than it normally approves in a year.

That unprecedented demand led to a frustrating backlog for both the bank and its clients, many of whom had payrolls to meet and decisions to make about whether to reduce their staffs.

“There was kind of a constipation issue — the rat got stuck in the boa constrictor — where we had to wait a week for documentation,” Wehmer said. “The SBA is doing the best it can.”

Like many participating banks, Wintrust is focusing on helping its existing customers first, Wehmer said.

“It’s basically clients first, because you have to know your customer,” Wehmer said. “Other people can apply — we kind of put them off to the side and deal with them secondarily.”

Toronto-based CIBC, which has its U.S. headquarters in Chicago, has gotten $675 million in its clients’ hands through about 700 fully funded paycheck loans of Tuesday.

Brant Ahrens, president of retail and digital banking for CIBC, said the rollout was “challenging” as the SBA “trickled out guidance” over the last two weeks. But the bank has processed more than 2,000 loan applications, with 1,700 approved.

CIBC also is prioritizing its existing clients for the program.

“We felt that we’re very much a relationship bank, and we wanted to serve those relationships first,” Ahrens said. “If there’s a time when the volume dies down, we’ll consider outside clients.”

One of the funded CIBC loans went to CH Distillery, a 7-year-old business that makes vodka and other spirits in a 50,000-square-foot facility in Chicago’s Pilsen neighborhood, and also has a pub/tasting room on Randolph Street in the West Loop.

CH Distillery received a $300,000 paycheck loan Tuesday.

The funding will keep its 20 employees on the payroll for eight weeks as the business navigates the surreal new normal that includes manufacturing hand sanitizer out of Chicago’s infamously distasteful spirit, Malort, which is now owned and produced by CH.

“Like most businesses, our payroll is our biggest expense,” said Tremaine Atkinson, 55, the CEO of CH Distillery. “It’s going to be very, very helpful to our business to have this money on hand, and most likely for it to be forgiven.”

Nick Fera, 70, owner of Chicago Building Consulting Services, which helps residential and commercial construction projects meet municipal codes and ordinances, also received a paycheck loan for his business Tuesday through CIBC.

The loan, which was “under $100,000,” came as Fera’s business slowed down to the point that he was running out of cash to pay his four salaried employees.

“I had enough for one more payroll, maybe,” Fera said. “I’ve been doing this since 1985. I’ve never been late for a payroll, I never missed a payroll, and this is as close as I’ve ever come.”

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Fera, whose office is on West Randolph Street in Chicago, deferred some of his rent payment to meet his last payroll. Without the loan, his next step was layoffs.

Todd Brook, 40, CEO of Envisionit, an 18-year-old Chicago digital marketing agency, couldn’t get the SBA process started at his regular bank in Wheaton, and reached out to BMO Harris. He applied for a $740,000 paycheck loan on April 4. It was approved April 10.

“There were a lot of sleepless nights in between,” Brook said.

The agency, which has 48 employees and about $15 million in annual billing, works with a number of clients directly affected by the stay-at-home order, from hotel chains and Choose Chicago, the city’s tourism arm, to Chicagoland Speedway in Joliet.

Brook said he was a couple of weeks away from implementing salary reductions or layoffs.

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“We were in a position where everything has paused,” Brook said. “It was that fine tightrope of, either we’re able to get hold of the (payroll loan) or I have to do something that removes 30% of my overhead.”

As of Wednesday afternoon, BMO Harris had secured $4.3 billion in funding for almost 10,000 borrowers, with more than a third of those loans in the Chicago area, bank spokeswoman Kathleen Szot said in an email.

Despite getting approval for her $62,500 federal loan through Fifth Third Bank, Capers, owner of the Loop hair salon, is still “waiting on the money,” and hasn’t shared the good news with her staff.